RSIEAblog

by Johannes Hendrik Fahner

The year 2016 was not a good one for Philip Morris. On 4 May 2016, the CJEU rendered its judgment in case C-547/14, in which it upheld the validity of the Tobacco Products Directive 2014/40/EU. On the same date, the CJEU also delivered its judgment in case C-477/14, in which it upheld the validity of Article 20 of the Directive, dealing with electronic cigarettes, as well as in case C-358/14, in which the Court dismissed an action for annulment brought by Poland against the Directive’s prohibition of characterising flavours. Two months later, an arbitral tribunal rendered its award in the high-profile investor-State arbitration case Philip Morris v Uruguay, in which the tribunal rejected the investors’ claims concerning Uruguay’s tobacco legislation.

 

Article 114 TFEU

In the main proceedings which gave rise to the preliminary reference of Case C-547/14, Philip Morris produced a creative list of reasons why the Directive could not credibly be based on Article 114 TFEU (see for similar complaints the earlier tobacco advertising cases C-376/98 and C-380/03). As recalled by the Court, Article 114 allows the EU legislature to adopt measures which have as their object the establishment and functioning of the internal market. Recourse to Article 114 requires ‘differences between the laws, regulations or administrative provisions of the Member States which are such as to obstruct the fundamental freedoms and thus have a direct effect on the functioning of the internal market’ (para. 58). Once this condition is fulfilled, public health protection can be a decisive factor in the choices to be made (para. 60).

According to Article 24(2) of the Directive, Member States can adopt ‘further requirements’ relating to the packaging of tobacco products in the interest of public health. Philip Morris pointed out that if Member States have this option, the Directive does not actually harmonise. The Court rejected this argument, arguing that Article 24(2) only applies to ‘aspects of the standardisation of the packing of tobacco products which have not been harmonised’ (para. 73), such as the colour of the packaging (para. 76). Still, the Court acknowledges that pursuant to Article 24(2), products which comply with the Directive may still not be able to move freely on the internal market, i.e. to Member States that adopt further requirements. Yet, according to the Court, ‘that is the inevitable consequence of the method of harmonisation chosen by the EU legislature’ (para. 80), namely partial harmonisation. The Court reaches similar conclusions regarding Article 24(3) of the Directive, which allows a Member State to prohibit a certain tobacco product altogether, and some of the Directive’s labelling requirements, such as the requirement to print health warnings in the official language(s) of the Member State (which means a packet cannot be sold in other Member States): ‘the fact remains that the directive harmonises other elements of the labelling and packing’ (para. 103). Conclusion: Article 114 is a proper basis for the Directive. Even if it does not eliminate all obstacles to trade, it does eliminate some (para. 81).

 

Proportionality

Philip Morris complained that several of the Directive’s requirements were not proportionate, such as the prohibition of promotional texts (even if true), the ban on flavours, the minimum number of cigarettes per packet, and the requirement to print health warnings covering at least 65% of the packet. In all these circumstances, the Court rejected the proportionality plea. Interestingly, the Court relied on a variety of arguments in responding to the different claims. At times, it notices that ‘human health protection (…) outweighs the interests put forward by the claimants in the main proceedings’ (para. 156). In other instances, it reminds us that ‘the main aim (…) is to remove differences between the rules of the Member States’ (para. 195).

The Court repeatedly notes that the Directive has a ‘twofold’ objective: facilitating the smooth functioning of the internal market and the protection of human health (para. 171). According to the Court, these objectives are ‘interdependent’ (para. 222). Upon closer reflection, however, it is doubtful whether this twofold objective allows for a consistent and coherent proportionality analysis. After all, the beneficiaries of a smooth functioning of the internal market are traders, meaning in this context Philip Morris and co. Yet the objective of public health protection is, in this context, contrary to the interests of those traders. The combination of the two objectives seems to explain why the Court’s proportionality assessments lacks coherence. The real question appears to be how Philip Morris’ economic interests should be balanced against the public interest of health protection, as recognized by the Court in para. 190. The considerations related to the smooth functioning of the internal market, seem to be of limited relevance, even if required by Article 114.

 

Philip Morris v Uruguay

When comparing the judgment of the CJEU in C-547/14 and the arbitral award in Philip Morris v Uruguay two similarities are striking. First, both the CJEU and the tribunal attached great weight to the guidelines adopted by the Conference of the Parties to the Framework Convention on Tobacco Control, even if these guidelines lack binding force. Second, both the CJEU and the arbitral tribunal accord a wide discretion to the legislatures whose decisions are under review. The Court notes that ‘the EU legislature must be allowed broad discretion in an area such as that involved in the main proceedings, which entails political, economic and social choices on its part, and in which it is called upon to undertake complex assessments’ (para. 166). The tribunal considers that ‘the responsibility for public health measures rests with the government and investment tribunals should pay great deference to governmental judgments of national needs in matters such as the protection of public health’ (para. 399). The similarities in the intensity of review adopted by both the Court and the tribunal, in combination with great societal concerns about smoking, probably explain why the contested anti-smoking measures were upheld in both cases.

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